How Your Small Business Can Raise Money From Its Community

Prior to the Jumpstart Our Business Startups (JOBS) Act, advertising investment opportunities in private companies were banned. That all changed when the JOBS Act was signed into law but it required the Securities &amp; Exchange Commission (SEC) to write the rules for three different ways private companies could raise money:

Doing a “mini IPO,” Regulation A+ or Title IV raise was implemented on June 19, 2015. While dramatically less expensive than an IPO, there is still substantial cost and legal and financial requirements. For these reasons, this form of financing is not recommended for very early-stage companies, which don’t have the resources to devote to raising money in this way.

Prior to the Jumpstart Our Business Startups (JOBS) Act, advertising investment opportunities in private companies were banned. That all changed when the JOBS Act was signed into law but it required the Securities & Exchange Commission (SEC) to write the rules for three different ways private companies could raise money:

Doing a “mini IPO,” Regulation A+ or Title IV raise was implemented on June 19, 2015. While dramatically less expensive than an IPO, there is still substantial cost and legal and financial requirements. For these reasons, this form of financing is not recommended for very early-stage companies, which don’t have the resources to devote to raising money in this way.

Crowdfunding from accredited investors and Reg A+ are intended for companies that want to grow mega firms — the 1% percenters of businesses. Reg CF is intended for small businesses — the other 99% percent. This article is about Reg CF. Oh yeah, a company that raises Reg CF can still become a mega company but the path might look different than a company that’s raised angel and VC.

The floodgates haven’t exactly burst open for Reg CF. That’s been the case for all forms of crowdfunding but all are making slow and steady progress. “It will take education,” said Ron Miller, CEO of StartEngine, a crowdfunding platform, a website that allows companies to raise capital by exchanging capital for securities (equity or debt). People need to know about the opportunity, challenges and benefits of raising money through Reg CF and how to do it successfully. Having a social network and knowing how to market to it are key, noted Miller.

Why Reg CF

Long-time friends and colleagues Angela Lee and Jennifer Roe teamed to the tell the story of 12 people including Roe who lost on average 100 pounds each. The documentary was called ‘From Fat to Finish Line.’ Because the documentary went viral and they received lots of requests for resources, advice and support, Lee and Roe realized they could turn the momentum into a business. They decided to use a membership model.

At first, they bootstrapped it then raised money from an angel but they needed more money. Lee and Roe tried to bring on additional accredited investors but the investors didn’t get the need for the service. Lee and Roe decided to raise money from their community, most of whom were teachers, nurses or others who didn’t qualify as accredited investors. “Why just be a member, when you can be an owner of the company?” said Lee. Being an owner, makes you even more engaged in the community and the overall success of the company, noted Roe.

As an early-stage company, Reg A+ wasn’t a fit for them but Reg CF was. Fat to Finish launched its campaign on January 16, 2017.